Tax cut plans dim as focus shifts to potholes

Now plans for a tax reduction are waning and shifting instead to addressing pothole-ridden roads.

By David Eggert
The Associated Press

4/28/2014

LANSING, Mich. — An income tax cut seemed inevitable just two months ago, as Gov. Rick Snyder and majority Republican lawmakers offered up and even began passing rival plans to use some of a budget surplus for short- or long-term tax relief before the 2014 elections.

Now plans for a tax reduction are waning and shifting instead to addressing pothole-ridden roads.

Snyder, who said he's open to dropping his tax plan to set aside more money for transportation, attributes the shrinking interest in tax relief to drivers who voiced their frustration.

"Much of it came about because of how serious the pothole season's been," he said. "I appreciate the general public speaking up more and more — they see a need to solve this problem in terms of transportation."

While legislators aren't ready to give up on tax cut discussions, they acknowledge that road funding could ultimately be a higher priority.

"In general, people are saying, 'Look, if we got a little extra money this year, rather than give a few dollars back to everybody when we have real structural problems with the roads, we think more people would prefer we go ahead and fix those roads,'" said Senate Majority Leader Randy Richardville, R-Monroe.

In his February budget blueprint, Snyder proposed a modest $100 million-a-year tax cut in the form of partially restoring an income tax credit for low- to moderate-income homeowners and renters that he'd previously helped eliminate to as part of a major overhaul of and cut in business taxes. The reduction also would be retroactive to the 2013 tax year, with taxpayers on average getting $79 rebate checks in the mail this summer.

Also pending on the floors of the GOP-led House and Senate are four separate tax-cut proposals that cleared committees, including a modified version of Snyder's plan that would let more homeowners and renters qualify.

Richardville cautioned that the Legislature may no longer be able to provide immediate tax relief this year.

"We just want to make sure we can afford it and that it's not a promise that is an empty promise. So it may not go into effect until somewhere down the road," he said. "It's not dead. There are things on the table and I'm all about helping make them happen."

Over in the House, where a committee on Tuesday will begin considering Republicans' proposed $450 million annual boost in transportation funding, House Speaker Jase Bolger, R-Marshall, said many constituents made it known that they want better roads more than lower taxes. A reduced tax bill may not mean much if motorists have to spend it at a car repair shop after driving on crummy roads, according to advocates.

"We're trying to look at everything simultaneously," Bolger spokesman Ari Adler said. "Whether we can do something with taxes and roads, we don't know yet."

The House road-funding plan primarily would replace flat per-gallon fuel taxes with ones based on the wholesale price, allowing for an inflationary increase in taxes over time; raise the diesel tax to the equivalent of the gasoline tax; and dedicate portions of the sales tax on fuel and the use tax on out-of-state purchases to transportation funding.

Bolger acknowledges the proposal wouldn't provide the $1.2 billion annual increase that Snyder has pushed for much of his three-plus years in office but said it's a solid foundation upon which to build. County road commissions and road builders say more than $2 billion is needed, arguing that road agencies are getting less in state funding than a decade ago because of flat fuel taxes, more fuel-efficient vehicles and the recession.

"You cannot get a group of co-workers around a water cooler these days without someone having personally experienced a flat tire, bent rim, broken wheel or front-end alignment problem this year," said Denise Donohue, director of the County Road Association of Michigan.

Though legislators' emphasis on tax relief may have declined, it remains possible especially as they look ahead to the August primary and November general election. Some, bracing for a looming tough vote to give $350 million in state funds to help bail out bankrupt Detroit's pension funds, could insist on a tax cut in exchange despite Snyder's distaste for horse trading.

A mid-May meeting when revenue estimates will be updated before the next budget is finalized could prove crucial. In January, economists projected a $1 billion surplus from last fiscal year through the next one, though some of that money recently went toward road maintenance because of the brutal winter.

"We can invest in roads, we can give some tax relief," said Sen. Dave Hildenbrand, R-Lowell, sponsor of two tax-relief plans. "The economy's doing better and all indications are we're going to be seeing more revenue."